Referral marketing dilemma: you can influence so little, and yet do so much

With notable tech brands I’ve worked with a large chunk of new business has come from 2 channels. One is what analytics software refers to as Direct, or people typing your web address to the address bar of the browser. The other is brand search, or people searching for your company name. It’s natural for companies with a long history or a big advertising budget, but how do young tech companies gain the gravity to start attracting people in such a way?

With Skype this was partially attributed to the great work of our PR team but these two channels drive the majority of new business for companies like Pipedrive, too. I’m pretty sure the two posts Pipedrive has gotten on TechCrunch and a bit of Adwords haven’t generated any significant brand awareness to speak of.

What’s behind brand search and Direct is your users interrupting each others’ busy lives to tell about your product. A sacred moment for any entrepreneur or marketer for sure.

You get what you measure, plus a lot more

The challenge for marketers is that referrals is a large blind spot for marketing analytics. It’s difficult to tell what’s behind Direct visitors and signups exactly: a press article, a link shared via Skype or email or a monkey with an online typewriter and an infinite amount of time. There’s even a suitable term for it – dark social.

Web analytics shows just a tiny sliver of referral activity – usually referrals originating from social media and any built-in tell-a-friend programs, which may account for 5-30% of total referrals. (Even less if tracking has not been properly set up.) This means you know very little about the majority of referrals: who is behind them, what is their motivation and the golden question: how to get more referrals.

The bad news: you can’t do much to influence referrals

When you can’t see referrals in your web stats or backend data, there are other ways to start understanding referrals. The simplest way is to ask them.

In a recent referral study we asked users of a SaaS product what had prompted recommending this software. We found out people had good reasons for spreading the word. The bad news (and the good news) was that around 60% of customers made recommendations proactively, without the company or people around the customer having direct influence. 32% had been asked software recommendations in that specific niche and 22% had been asked good software tips in general. At the time the company wasn’t very active in asking for recommendations, but it was sobering to see influence over only around 3% of recommendations.

And when we asked about the main motivation to recommend the software then 60% or more people wanted to help someone or they just “really liked the software a lot”. Just 1% of people had made referrals to earn free months! (but again, this wasn’t communicated actively back in the day)

But there are still many things to do to get more referrals

The flip side of the fact you can’t influence the majority of referrals is that you CAN influence the minority. Every company can, for instance:

Add a straightforward way for people to recommend you. If you’re building a web tool, make sure you have a tell-a-friend functionality that’s easy to find and that functions well end to end. If you run a hair saloon, print referral flyers/invites. Referrals happen naturally anyway, you can improve end-to-end conversion and improve tracking by doing relatively little. For example having a pre-written referral email takes a lot of friction away for busy people or people who can’t express your value proposition in 2 sentences (that’s 99% of customers and 60% of your whole team) and can make a huge difference.

Ask for referrals. Everyone in sales knows this already, but surprisingly few tech companies ask for referrals. You don’t need to develop an elaborate referral program a la Airbnb or Transferwise immediately, asking nicely in an email is a good start.

Get the timing right. Referrals don’t happen evenly throughout the user life cycle. For gyms, the best time for referrals is around week 6 when you’ve seen some results but routine has not kicked in yet. For software this may be anywhere from day 2 (simple games) to months 2-4 (elaborate software that take time to learn and make an impact). Once you’ve found the sweet spot, set up a triggered notification or email for that time.

Similarly, you can optimize rewards. If just a few customers care about a monetary reward, try offering a charitable donation or recognition in exchange for recommendations instead.

Oh, and don’t forget to build a great product, so people want to spread the word about it (you heard it here first).

In conclusion, the fact that you can’t influence the majority referrals is good in several ways. If you’ve built something notable, you can count on Direct and brand search traffic to arrive on your doorstep without you doing anything. But perhaps more importantly, you can optimise end-to-end referral flow, timing of asking for referrals and rewards. Any time and money spent on this is guaranteed to be among your most profitable marketing activities.